What's going on here? Business income drastically reducing refund

[avigo45]

So I file jointly. My partner has W2 income, I have a small amount of income recorded on schedule C. 

I'll use random numbers to try and explain what's going on:

After putting in my partner's W2 (say it's $60,000), the federal refund is $2,000.

When input put in my gross on schedule C (say it's $2,000) it drops the refund to $1,000.

I did not pay taxes throughout the year, so having to pay is expected, however, it seems my schedule C income is being taxed at around 50%. Does this makes sense?

[VolvoGirl]

You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

Plus the Net Profit on Schedule C increased your total income that you get taxed on.  When you enter one taxable transaction, you can't just watch the monitor.  You increased your overall adjusted gross income and with that come many other changes in your return, not just the incremental tax on the one transaction.

Like for example it increased your AGI and that would decrease some deductions if you itemized on Schedule A.  And by increasing your AGI it might reduce some credits you were getting like EIC.  And can make more of any Social Security taxable.

[ThomasM125]

When you add your self-employment income it can affect other things. For one thing, you are subject to a self-employment tax of about 15% on your net self-employment income, in addition to your income tax. Also, the addition of your income may lower the amount of tax credits and raise the portion of your income taxed at your highest marginal tax rate.

I suggest you look at your form 1040 and schedules 1 to 3 to see what is changing when you add your self-employment income.

To view your form 1040 and schedule 1 to 3:

1. Choose Tax Tools from your left menu bar in TurboTax Online while working in your program
2. Choose Tools
3. Choose View Tax Summary
4. See the Preview my 1040 option in the left menu bar and click on it
5. Choose the Back option in the left menu bar when you are done